Question

Kima Company manufactures and sells two models of a home appliance. The Standard model is a basic appliance with mostly manual features, while the Galaxy model is highly automated. The appliances are produced to order, and there are no inventories at the end of the year. The cost accounting system at Kima allocates overhead to products based on direct labor cost. Overhead in year 1, which just ended, was $3,124,750. Other data for year 1 for the two products follow: Standard Model Galaxy Model (20,000 units) (3,000 units) Sales revenue $ 6,050,000 $ 2,750,000 Direct materials 2,450,000 350,000 Direct labor 1,650,000 505,000 Required: a. Compute product line profits/loss for the Standard model and the Galaxy model for year 1. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

Answer 1

Standard model = ($442,621)

Galaxy model = $1,163,871

Explanation:

According to the question for computing of product line profits/loss for the Standard model and the Galaxy model first we need to find out the total direct labor of Kima and after that the percentage of standard share and Galaxy share is shown below:-

Total direct labor of Kima = Direct labor of Standard Model + Direct labor of Galaxy Model

= $1,650,000 + $505,000

= $2,155,000

Percentage of Standard share = $1,650,000 ÷ $2,155,000

= 76.57%

Percentage of Galaxy share = $505,000 ÷ $2,155,000

= 23.43%

Particulars Standard model Galaxy model

Sales revenue $6,050,000 $2,750,000

Less: Direct material ($2,450,000) ($350,000)

Less: Direct labor ($1,650,000) ($505,000)

Contribution $1,950,000 $1,895,000

Less: Overheads ($2,392,621) ($732,129)

($3,124,750 × 76.57%) ($3,124,750 × 23.43%)

Profit or Loss ($442,621) $1,163,871